What happened
Shares of Nutrien (NTR -0.28%) fell Thursday morning in the wake of its first-quarter earnings release after the bell Wednesday, and were down about 5.8% as of 12:10 p.m. ET.
The fertilizer giant delivered record profits and cash flow in 2022, but things are already looking shakier this year. Management slashed its outlook for 2023 in Wednesday evening's report, and at least one analyst has cut the agriculture stock's price target since. And after its share price fell steadily over the past month or so, an investment bank that had made a mini-tender offer to acquire some shares of Nutrien just withdrew its bid.
So what
Nutrien's first-quarter sales were 20% lower year over year, while its net earnings more than halved. Blame lower prices across all of its segments -- ag solutions (which primarily covers crop nutrients), potash, nitrogen, and phosphate.
Benchmark prices of key fertilizers are down by double-digit percentages from a year ago. Russia's invasion of Ukraine drove fertilizer prices to record highs in 2022, but they've cooled off since because of multiple factors, including fluctuations in demand and lower prices of natural gas, which is a key input for nitrogen. The Russia-Ukraine war also appears to be built into the markets' expectations by now.
Leading fertilizer and crop nutrient companies like Nutrien minted a lot of money last year, but investors have been coming to the conclusion that they won't reprise that performance in 2023. Nutrien just confirmed that by slashing its guidance for the year.
| Metric | Previous Guidance Range for 2023 | Revised Guidance Range for 2023 | Actual 2022 |
|---|---|---|---|
| Adjusted EBITDA | $8.4 billion to $10 billion | $6.5 billion to $8 billion | $12.2 billion |
| Adjusted earnings per share | $8.45 to $10.65 | $5.50 to $7.50 | $13.19 |
Data source: Nutrien. EBITDA = Earnings before interest, taxes, depreciation, and amortization.
On Thursday morning, Credit Suisse analyst Edlain Rodriguez cut his price target on Nutrien to $60 a share from $70 per share. As of this writing, the stock is changing hands at around $59.60.
Nutrien stock has already fallen by more than 25% since the beginning of March, and there are no signs that a recovery is imminent. That explains why Canada-based TRC Capital, which in early April initiated a cash mini-tender offer to acquire up to 1 million shares of Nutrien directly from shareholders at a price of 93.89 Canadian dollars per share, on Thursday terminated the offer.
Now what
Nutrien's sales and earnings are directly correlated to fertilizer prices, which can fluctuate because of factors that are out of the company's control. Its shareholders, therefore, should always be prepared for volatility.
That also means it may not be a wise idea to sell Nutrien stock right now, as it's hard to predict which way fertilizer prices are headed. Remember, 2022 was an exceptional year, so the fertilizer industry's earnings were bound to normalize. Nutrien is a financially strong company that has a solid foothold in its industry, and pays a dividend that yields a decent 3.3% at the current share price.
